In Cyprus, regulations are now applied for transfer pricing “transactions between related companies – intra-group transactions”, which are now defined as transactions between persons whose direct or indirect connection amounts to a percentage equal to or greater than 25%. The provisions are in line with the Organization for Economic Co-operation and Development – OECD Guidelines and are applicable to both businesses and tax authorities.
Listed below are the most important points of the relevant regulations for transfer pricing regulations in Cyprus “regulations on intra-group transactions”
Transfer pricing Documentation Files and Quality Assurance Review
Cyprus transfer pricing Documentation File
Obliged to maintain a transfer pricing Cyprus Documentation File are Cyprus companies or Cyprus permanent establishments, whose intercompany transactions with related companies (Two companies including companies tax residents of Cyprus are considered related if the same person (and related persons) (under certain conditions) directly or indirectly own 25%) in total per category of transactions exceed or should exceed if carried out on an arm’s-length principle basis of, 750 thousand euros per tax year. Transaction categories relate to goods, services, rights, and other intangible assets and financial transactions. The content of the Cyprus Documentation File should be similar to the OECD recommendations. That is, it focuses on the analysis of the financial and operational profile of the Cyprus company or Cyprus permanent establishment, the market conditions where it operates, the analysis of the documentation methodology of its relevant transactions, and the comparison or reference data.
Transfer pricing Basic Documentation File or Master File
A transfer pricing Basic Documentation File or a Master File is drawn up by Cyprus companies that are the ultimate parent entities of a multinational group or have been designated as substitute parent entities by the group to which they belong, which for the year preceding the year under review has a consolidated revenue of more than 750 million euros. General information about the group is included in the Master Documentation File.
Documentation Files are subject to quality control review
The Documentation Files that are drawn up are subject to quality control review by approved persons who hold a practicing certificate of ICPAC or any other recognized institute of certified accountants in Cyprus no later than the date of the obligation to submit the tax return of the taxpayer. Transfer pricing Documentation Files are made available to the Cyprus Tax Department within 60 days after they have been requested. The Files are updated every tax year.
Obligation to prepare a Summary Table of Information
Obligation to prepare a Summary Table of Information, which presents a summary of entity’s-intercompany transactions, and the tax jurisdictions and tax identities of the entities with which the transactions took place. The Summary Table of Information is submitted electronically to the Tax Department of Cyprus together with the tax return of each Cyprus company or Cyprus permanent establishment.
Possibility of applying for pre-approval of the transfer pricing methodology (Advance Pricing Agreement).
It is possible to apply for pre-approval of the transfer pricing methodology for specific future or existing transactions of Cyprus companies or Cyprus permanent establishments with related persons to the tax department of Cyprus.
The tax department of Cyprus decides within 10 months (the decision time can be extended up to 24 months) from the application submission and the decision is communicated to the applicants. The duration of validity of the pre-approval decision may not exceed four years and its temporal validity may not refer to a tax year that has passed at the time of the submission of the pre-approval application.
The pre-approval decision is considered binding but can be revised during its validity, either upon application, or ex officio by the tax department in cases of incorrect or materially changed assumptions and data, as well as in case of an application for a mutual settlement procedure.
The regulations apply from 1 January 2022
Charges and fines
In non-compliance with the relevant documentation obligations of intercompany transactions, a fine of between €5,000 and €20,000 will be imposed depending on the days of delay in compliance. In case of delay in submitting the Summary Table of Information, the fine amounts to €500.
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